Strong auto output boosts factory production

WASHINGTON — A strong increase in auto output boosted U.S. factory production last month, the latest sign that manufacturing is helping drive economic growth after lagging for much of 2012.

Factory output rose a seasonally adjusted 0.8 percent in February from January, after falling 0.3 percent in the previous month, the Federal Reserve said Friday.

The biggest gain was in autos and auto parts, where production increased 3.6 percent after falling 4.9 percent in January. Car sales have risen steadily this year after reaching a five year high in 2012.

Overall industrial production, which includes mining and utilities, rose 0.7 percent in February. That is the most in three months. Utility output jumped 1.6 percent while mining output, which covers oil and gas drilling, fell 0.3 percent, the third straight decline.

Still, economists were encouraged by the broad-based gains in factory output. Rising home construction and increased business investment in machinery and other goods are also boosting manufacturers. The Fed’s measure of factory production is at its highest level in more than four and a half years.

Production of construction supplies, which includes steel, cement and wood products, rose 1.5 percent, the fourth straight solid gain. Factories also cranked out more industrial machinery, appliances, and furniture.

“Growth has clearly picked up,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics, said in a note to clients. “This is another positive sign” for the economy in the January-March quarter.

O’Sullivan forecasts that growth will jump to a 3 percent annual rate in the first quarter, after barely expanding in the final three months of last year.

Jonathan Basile, an economist at Credit Suisse, said the healthy increase in output suggests manufacturers will need step up hiring in the months ahead. Factory job gains could rise to 20,000 a month, up from average gains of 13,000 in the past three months.

Factories are running at nearly full speed to keep up with demand. Manufacturers are now using 78.3 percent of their capacity, the highest since December 2007, when the recession began. That’s just a half-point below the long-run average.

Running near full capacity could lead to higher prices for manufactured goods, economists caution, and could push up inflation.

But for now, a separate report Friday showed that consumer prices, outside gas, remained tame in February.

The industrial production report adds to recent signs that manufacturing is picking up.

A closely watched index of U.S. manufacturing activity increased in February for the third straight month. Big increases in new orders and production pushed the Institute for Supply Management’s index to its highest level in 20 months.

New car and truck sales rose 4 percent in February from a year earlier to an annual pace of 15.4 million. That’s a big improvement from sales of only 10.4 million in 2009. It’s still short of the pre-recession peak of 17 million in 2005. Auto makers are expected to have boosted output last month to keep up with the sales.

Increasing factory output is contributing to an improved outlook for the economy this year. Americans are spending more, despite higher Social Security taxes and a sharp increase in gas prices. Retail sales rose in February at a healthy pace.

The job market is also gaining steam. Employers have added more than 200,000 jobs per month in the past four months, nearly double the average last spring. That’s pushed the unemployment rate down to a four-year low of 7.7 percent.